Capitalization of remittances might be a formula

From El Estado como tal

The recent announcement whereby the Cuban government has authorized citizens residing abroad to invest in the national economy, in my opinion, is good news. It is not everything needed, but it is a step in the right direction.

Since, according to what has been published, the amounts invested cannot exceed one million dollars, one can deduce that the money is not conceived primarily for state sector investments, but rather for the so-called non-state sector, in other words, for the private and cooperative sectors.

However, there are several issues that need resolving so that it does not become a good, but impractical, idea. They include the fact that most Cubans living abroad would doubtfully have the capacity to invest even $250,000 for projects in Cuba.

Even those who can invest these amounts require the status of a legal entity with all the guarantees and possibilities to carry out this investment. In practice, it would require a specifically approved SME to invest and operate a business, according to regulations established by the Foreign Investment Law. And it would not make sense that if SMEs have yet to be approved for residents living in the country that they be approved for Cubans residing abroad which allow them to operate their investments in Cuba.

At the same time, it is not an exaggeration to state that in the 28 years since the dollar was decriminalized in 1993, billions of dollars have entered the country by way of remittances. If we apply an average figure of 2.5 billion dollars per year (which I doubt was ever less than that), you have an approximate idea of ​​the volume of financial resources that could have been better used, in addition to consumption, and in other areas such as imported commercial activities, real estate investments, and in the productive investment developed by thousands of small and medium private producers, especially in the agri-food industry.

The really smart and practical solution could be to finish passing the legislation, as quickly as possible, authorizing the creation and regulation of Small and Medium-sized private companies, which may be the ideal investment vehicle for Cuban residents living inside and outside the Island.

One of the main problems that the Cuban economy has to solve today, possibly one of the most urgent, together with the serious food problem, is the shortage of liquidity in foreign currency that would allow it to operate with a minimum of efficiency.

Assuming, for example, that SMEs, in the first year, were able to assimilate a total amount of one billion dollars, it would possibly be more difficult to get one thousand Cubans residing abroad to invest in 1 million dollars each in Cuba than to get 50,000 Cubans each investing $20,000 in a year. The liquidity effects in foreign currency to the country would be similar, but the impact on the productive capacity and supply of products for consumption could be substantially greater, especially if a part of this injection of small capital was directed towards small business production agri-food. Calculations are necessary, but surely the multiplier effect on the economy would be substantially greater when 50,000 investors invested $20,000 each.

Ultimately, the country’s economy and the government should be most interested in bringing in as much foreign currency as possible that can be mobilized based on the interests of the entire economy, which must include, of course, those of the population. Remittances enter the economy through banking mechanisms, but their destination is used by the population. And it is at this point where an intelligent and non-ideological decision in the smaller investments can contribute decisively, in this especially complicated stage, to integrate an important segment of the Cuban population, who lives both in the country and abroad, to the productive solution that can make a significant contribution to get us out of the crisis at this historical moment.

It would possibly be necessary to adjust the mechanisms, essentially banking, and also legal ones, allowing dollars that individuals receive as remittances to become the initial capital to create an SME, whose owner is a company created, according to Cuban law, between a Cuban resident in Cuba and another living abroad.

If the Bank authorizes that SME to create an account in foreign currency, that money can be used to pay for importation of equipment, raw materials and materials to develop its project. At the same time its operating expenses, including salaries, are executed in CUP (Cuban pesos), obtaining them at the official rate — currently 24 CUP for 1 dollar — which could lead to the formula that coincides with the interests of the population to receive remittances in order to acquire the consumer goods that they can purchase in dollar stores, and also invest in a small or medium private company like a family business or legal partnership. All this carried out with a Cuban interested in investing from abroad without having to invest in the country, if it is not his or her wish.

For these purposes the law needed is one creating SMEs that allow them the legality to make them economic entities in the productive, service, commerce, transportation, construction, accommodation and other sectors with multiple economic rights and converting their owners in private entrepreneurs. Earnings, after paying taxes, would also have to be private goods, which can be reinvested, used for consumption or repatriated.

If this became reality, it would create a paradox for the empire: using the blockade to prevent the promotion of private enterprises in Cuba by people who are citizens of the United States.

Joaquín Benavidez Rodríguez was minister and president of the State Committee for Labor and Social Security from 1980 to 1990.

Translation to English by Progreso Weekly.